HomeMost PopularInvestingMarketAxess Stock Struggles Under Inflation Shock and Stagnant Growth

MarketAxess Stock Struggles Under Inflation Shock and Stagnant Growth

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MarketAxess stock (NASDAQ: MKTX) is currently trading at $234 per share, plummeting 60% from its level of $580 on February 2, 2021, signaling an undervalued state. MarketAxess witnessed its stock price around $256 at the end of June 2022 before the Fed’s rate increases, and is now trading 9% below that level. This downward trend comes amidst tough macroeconomic conditions and stagnant growth in MKTX revenues, leading to waning investor confidence. The adversity faced by the company underscores its struggle to outperform the market.

The stock’s performance in the last three years has been disappointing, with returns at -28% in 2021, -32% in 2022, and -16% in 2023. Comparatively, the S&P 500 experienced returns of 27% in 2021, -19% in 2022, and 19% in 2023 (YTD), highlighting MKTX’s consistent underperformance against the broader market. This makes it challenging for individual stocks, including heavyweight players like V, JPM, and MA, as well as megacap stars GOOG, TSLA, and MSFT, to achieve market-beating results in recent years.

In such a tumultuous macroeconomic environment with soaring oil prices and elevated interest rates, the critical question arises – will MKTX continue to underperform the S&P or will it witness a promising recovery in the next 12 months?

To return to pre-inflation level, MKTX stock needs to surge by approximately 148% from current levels. While this may not materialize in the short to medium term, the company’s long-term growth potential remains enticing. MarketAxess operates an electronic trading platform for fixed-income securities and holds a dominant position in the market. Consistent growth in its average daily volume (ADV) is anticipated in the coming years.

Assessing MarketAxess Performance

MarketAxess (MKTX) stock has struggled to maintain its value, and the company’s fundamentals reflect the challenge. The revenues initially increased from $511 million in 2019 to $689 million in 2020 due to trading volume growth. However, they stagnated at $699 million in 2021 and 2022, indicating a slowdown in trading volume growth. Similarly, the earnings rose from $5.53 in 2019 to $8.01 in 2020 but dropped to $6.68 in 2022.

Navigating Inflation Shock

Examining the impact of the inflation shock on MKTX stock, it’s crucial to understand the timeline of the shock. From the early stages of money supply increase to address lockdown impacts to the peak of inflation levels at 9% in June 2022, the shock has been a significant factor influencing stock performance. Fed’s efforts to control runaway inflation have played a pivotal role in shaping market sentiment and will continue to impact MKTX’s trajectory.

Comparing with Past Financial Crises

When juxtaposed against the 2007-08 financial crisis, MKTX stock had a difficult time, losing nearly 51% of its pre-crisis value before recovering post the crisis. The stock decline echoes the market’s struggles during that period, emphasizing the cyclical nature of financial markets and the challenges faced by individual stocks.

Potential for Recovery

With the prospect of the Fed’s measures alleviating fears of a potential recession, MarketAxess (MKTX) stock holds the potential for robust gains once market sentiments improve. The current troubled state may present opportunities for investors as the company’s long-term prospects remain promising.

Source: High Quality (HQ) Portfolio

[1] Month-to-date and year-to-date as of 11/22/2023
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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